Capital Gains Tax in the UK — what it is and how to reduce it legally
Capital Gains Tax (CGT) applies when you sell an asset for more than you paid for it. In the last two years, the annual exemption has been cut from £12,300 to just £3,000 — a change that has brought many more people into scope. If you hold investments outside an ISA, understanding CGT is now more important than it used to be.
What triggers CGT
CGT applies to the sale (or disposal) of assets including: shares and funds held outside an ISA, second properties and buy-to-let, personal possessions worth over £6,000 (excluding cars), and cryptocurrency. It does not apply to assets held inside an ISA or pension, your main home (usually), cars, and most personal effects under £6,000.
The rates
For the 2024/25 and 2025/26 tax year, CGT rates are: 18% (basic rate taxpayers) and 24% (higher/additional rate taxpayers) on residential property gains. For other assets including shares: 10% (basic rate) and 20% (higher/additional rate). Your CGT band depends on whether the gain, added to your income, falls in the basic or higher rate band.
The annual exemption — use it or lose it
Every individual has a £3,000 annual CGT exemption. Gains below this are tax-free. But unused exemption cannot be carried forward — it resets each 5 April. This means if you have gains to realise, spreading them across tax years (where possible) can double your effective exemption.
Legal ways to reduce CGT
Use your ISA allowance. Assets inside an ISA generate no CGT ever. Moving investments into an ISA (via selling outside and buying inside — sometimes called 'bed and ISA') uses your annual allowance and shields future gains. The helps track what you have left this year.
Use your spouse's or civil partner's allowance. Transfers between spouses and civil partners are exempt from CGT at the point of transfer. This means you can transfer assets to a spouse to use their annual exemption and potentially their lower tax rate before selling.
Offset losses. Capital losses from other assets can be offset against gains. If you have loss-making investments, selling them in the same tax year as a gain can reduce your CGT liability. Losses must be reported to HMRC even if they offset fully.
Timing. If you're close to a tax band boundary or the £3,000 exemption threshold, deferring a sale to the next tax year resets your exemption and may push the gain into a lower rate band.
See the for how the ISA wrapper works in practice.